Sunday, 1 March 2009

Lawsuit over fees for card use abroad still not settled

Almost a year has passed since I wrote about the pending class action lawsuit against credit card companies and banks for hiding the currency conversion and processing fees they've been charging whenever customers with credit, debit, and ATM cards issued in the USA use those cards outside the USA.

"Where's my money?", you may be wondering, if you filed a claim for a share of the third of a billion U.S. dollars that the card companies and banks have offered to pay to settle the lawsuit and pay the lawyers for the class of people who used their cards abroad.

The short story is that the settlement fund is still in escrow, pending a decision by the Court on whether to approve the settlement and, if so, how much of the money to award to the lawyers and what alogrithm to use to to allocate the remainder among the individual claimants. There's supposed to be another hearing before that decision, but the hearing hasn't been scheduled yet.

In the meantime, I've gotten some further clues recently about just how poor a job of representing us our lawyers and the "representational plaintiffs" have done, how inadequate the settlement amount is, and how unfair the algorithm for allocating the money is likely to be.

According to the latest documents I've obtained, the claims submitted far exceed the amount of the settlement fund, so claimants will receive only a fraction of what they expected. The algorithm for that reduction has not been determined, but what's being proposed by class counsel is a formula under which all claims for above $225 would be reduced by at least 50%, while those who spend more time abroad would have their payments reduced to as little as 10% of the per diem amount paid to those with less foreign travel.

This formula is based on clearly mistaken assumptions that betray a complete lack of understanding of the demographics and financial behavior patterms of international travellers.

For example, the consultants developing the algorithm assumed (without any stated evidence or basis) that "persons living abroad for extended periods obtain lodging which is not paid for with credit cards (such as apartments, ... etc.)." But they ignore the fact that, if you don't have a local bank account in the country where you are staying, you typically pay your rent in cash obtained from an ATM with a debit card, typically Visa or Mastercard branded and thus subject to the foreign exchnage fees at issue in this case (or, perhaps, with a money order or the like purchased with cash obtained from an ATM, which has the same consequences).

This failure to take into consideration the use of ATM (debit) cards as the source of most cash spent by long-term travellers is also reflected in the algorithm in the assumption that cash spending estimated from surveys should be deducted from estimates of card usage. In reality, most card usage by long-term travellers, and by those expatriates who don't have a corporate or organizational sponsor to help them qualify to open a local-currency bank account, is ATM card use to obtain local-currency cash -- not credit card use. This conceptual error by the consultants developing the algorithm would result in a gross underestimate of card usage, fees, and payments due to independent long-term travellers and expatriates.

The claim form and the algorithm also err in basing payments on total numbers of days abroad, thus conflating multiple short-term trips with fewer or a single long-term trip, despite the very different payment patterns that characterize frequent short-term business or leisure travellers as compared with long-term travellers or expatriates living abroad.

Development of the algorithm has been contracted out to a team from the Analysis Research Planning Corporation (ARPC) led by ARPC President B. Thomas Florence . Despite billing their time on this case at rates ranging from US$500/hour for Florence himself to $225/hour for the most junior associates, Florence and his company give no indication whatsoever, on their corporate Web site or in any of the declarations they have filed in the case describing their expertise, of any travel-related subject-matter expertise or experience. They claim expertise in statistical modeling, but you can't model a phenomenon you don't understand.

The misconceptions underlying the algorithm should have been noticed by the "representational plaintiffs", if they actually represented the distinct sub-groups included in the class:

People who live near a border and cross regularly for work, shopping, etc.

Short-term business and vacation travellers

Long-term travellers and expatriates

People who purchase goods and services from abroad by credit card without actually spending time abroad themselves (e.g. people who buy prescription medicines by mail order from Canada where they are cheaper, and pay for them with USA-issued credit cards that are charged in Canadian dollars)

Class counsel who were looking out for the interests of all members of the class should also have noticed these problems in the algorithm, although they have little motivation to care since they get the same amount of compansation regardless of how the settlement fund is divided among the class.

The problems in the algorithm thus call into question the adequacy of the representation of the class by class counsel and the representational plaintiffs. That's why I've objected to the overall settlement amount and the award of fees to class counsel, as well as the settlement allocation plan, and have argued that neither of those issues can or should be decided until after the algorithm is finalized.

I found all this out only by persistent questioning. I'd gotten no news about the progress of the case since the hearing in Federal court in New York in March 2008, which I couldn't afford to come back from Eritrea where I was travelling to attend. So last month I contacted the lawyers for the class (my lawyers and yours, who are asking the court for $75 million for representing us) to find out what's up. I discovered that they have filed numerous new motions and documents with the Court, but without making most of those filings public, serving them on me or the other members of the class who had objected to the settlement as inadequate and/or unfairly allocated, or making any attempt to notify us of what was happening.

Some of these filings were eventually posted online, and I got class counsel to send me some but not all of the others. I also alerted those of the other objectors for whom I could find e-mail addresses. Amazingly, even when asked, class counsel refused to send these same documents to the other objectors. And the cover letter to the latest batch of filings they sent me refers to them as "courtesy copies", as though class counsel weren't legally obligated to serve their filings on all other parties to the case, including the objectors. So I've posted copies, or links to the fairly obscure pages on the settlement Web site, for these filings since the hearing last March that aren't available elsewhere and/or haven't been served on all the objectors:

I don't really understand why some of these filings were posted online, and some not, and why some of them were served on the objectors, and some not. Class Lead Co-Counsel Merrill Davidoff of Berger and Montague told me by e-mail, "I believe these filings were served on the objectors and will confirm that. Perhaps your peripatetic lifestyle accounts for your failure to receive them earlier." I haven't heard further from Davidoff, but the Certificates of Service I eventually received confirmed that his firm made no attmept to serve these documents on any of the objectors. Davidoff's associate David Langer told me that class counsel deliberately didn't send us notice of these filings, much less serve us with copies, because they "didn't think objectors would be interested in them." As I said to Davidoff, Langer, and their colleagues in response:

It is not for class counsel to decide which filings would be of interest to objectors, since by our objections we have indicated that we do not believe that you have demonstrated the ability to represent our interests....

My "peripatetic lifestyle", as you put it, is characteristic of members of this class. Your failure to take into consideration that members of the class -- especially those with the largest claims -- either live abroad or spend much of their time traveling abroad, is part of the evidence of the inadequacy of your representation of us as a class.

Most Federal court documents aren't available (yet) for free, although some people have been campaigning to change that. For now, you have to pay by the page even to look at the docket listing what papers have been filed, unless you go to the court clerk's office in person. The transcript of the hearing wasn't available in electronic form at all: I had to pay 50 cents a page for a photocopy, then pay to have it and the other papers I got from class cousel scanned since I don't have a high-speed scanner. As of now, including the cost of filing my objection -- which required multiple registered international airmail letters from Istanbul, where I was at the time -- I'm out of pocket about US$275, which is almost certainly more than I will ever receive under the settlement.

If you'd like to contribute, you can make a donation by Paypal or send me a check. In the unlikely event that I get more contributions than I've already spent, I'll put any excess towards the cost of attending the next hearing in the case in New York, so as to speak on behalf of long-term, independent travellers and people who have lived abroad without corpoorate or organizational sponsors to help them upen a local bank account, and therefore who have, of necessity, covered most or all of their expenses with local currency cash obtained abroad using USA-issued ATM cards.

What's next? At the hearing on 31 March 2008, Judge Pauley said that, "With respect to the algorithm, I will issue an order for a further hearing in connection with that matter." According to the judge's chambers, the court clerk's office, and class counsel Langer, when I spoke with each of them last month, no such hearing has yet been scheduled. But I'll be there if I get notice, and if I can afford it.

Stay tuned.

[Update, 2 March 2009: The day after posting this article, I received a copy in the mail from Berger and Montague of another court order dated 24 February 2009. I've scanned it and added it to the list of links above. It was accompanied by a copy of a fax from Judge Pauley's chambers to class counsel Merrill Davidoff and Fiona Schaeffer, which I have included in the scan, "THE COURT DIRECTS YOU TO SERVE A COPY OF THIS ORDER TOGETHER WITH THIS FACSIMILE COVER SHEET ON ALL COUNSEL OF RECORD AND ANY PRO SE PARTIES." We'll see if class counsel get the message and properly serve all future pleadings and notices on all the parties to the case, including the objectors.]

[Further update: Additional documents filed by class counsel 20 May 2009, but still not served on the objectors.]

"Congress shall make no law ... abridging ... the right of the people peaceably to assemble." (U.S. Constitution)

"Everyone has the right to freedom of movement and residence within the borders of each state. Everyone has the right to leave any country, including his own, and to return to his country." (Universal Declaration of Human Rights)

"Liberty of movement is an indispensable condition for the free development of a person." (United Nations Human Rights Committee)